LANSING — Republican leaders in Lansing say they do not plan to cut K-12 funding for the upcoming school year as the state’s economy begins to rebound and state officials contemplate an unexpected surplus from fiscal 2011.

But there’s still a chance schools could end up with less money for 2012-13.

It appears now there won’t be enough money in the state’s School Aid Fund to cover $200 per student in one-time funding allocated to districts this school year as part of a last-minute budget deal. And Republicans are making no promises about whether that funding would be continued or replaced in another form.

“It is not the speaker’s plan, hope or desire to make more school cuts,” Ari Adler, spokesman for House Speaker Jase Bolger, R-Marshall, said late last week.

However, Adler also said, “That $200 was one-time money. We may end up providing funding for schools in ways that are similar to what we did this year, but schools were told the $200 was one-time money. It’s too early to say what exact form school funding will take in the next budget, so schools shouldn’t assume anything.”

If schools don’t get the money, a big reason will be a $1.6 billion business tax cut that took effect Jan. 1.

That cut is costing the School Aid Fund — the primary revenue source for Michigan’s K-12 schools — more than $700 million per year, or almost $500 per student, according to the Senate Fiscal Agency.

In fact, the loss of money from the business tax means the state’s School Aid Fund is expected to see its lowest revenues in inflation-adjusted dollars since the adoption of Proposal A in 1994.

“They’ve given a huge tax break to corporations, but where are they taking those dollars from?” said Patrick Bird, superintendent of Mattawan Public School. “They’re obviously taking it out of K-12 education.”

Last year’s budget

Bird and many other Michigan school officials still are fuming about last year’s budget process.

The $13 billion School Aid Fund started 2011 with a surplus. But Gov. Rick Snyder essentially used that money to plug a shortfall in the state’s General Fund by allocating almost $400 million from the School Aid Fund to higher education.

The move ignored a long-standing assumption that the School Aid Fund was exclusively for K-12 education, outraging many who saw it as violating the spirit of Proposal A, the 1994 law that overhauled K-12 financing.

In the end, Republicans reduced the minimum per-student foundation allowance by $300, to $6,846, for 2011-12, and districts lost another $170 per student in federal stimulus dollars.

However, the cuts were partially offset by $200 per student in one-time funding: Districts got $100 per student to help with rising pension costs and $100 per student if they adopted “financial best practices,” such as having employees pay at least 10 percent of their health insurance premiums.

For Kalamazoo Public Schools, the one-time funding for this year totals $2.5 million, or 2 percent of its operating budget; for Portage Public Schools, it was $1.7 million.

Local educators say they understand the $200 per student was billed as “one-time funding,” but if that money goes away, they said, they most certainly will consider it a budget cut.

Michael Rice, superintendent of Kalamazoo Public Schools

“It counts when you gave it to us; it counts when you take it away,” said Michael Rice, superintendent of Kalamazoo Public Schools.

Steve Goss, assistant superintendent of Vicksburg Community Schools, who oversees finances for that district, said if Vicksburg schools lose the $200 per student “it will cause a dramatic round of budget cuts.”

“I hear what they’re saying,” that it was one-time funding, Goss said. “But we base our budget for next year on what we received this year, and those dollars are figured into that amount. To not see that as a cut if we lose that money, well, that’s disingenuous.”

Business tax cut

Based on current estimates, the School Aid Fund won’t have enough money in 2012-13 to continue the $200 per student in one-time funding.

While the Senate Fiscal Agency currently estimates the fund will have $148 million surplus for 2012-13, that’s assuming schools won’t be receiving the $300 million spent on the one-time funding allocation.

The major reason for the shortfall is last year’s $1.6 billion business tax cut.

The Republicans financed the business tax cut by making pension income subject to state income tax and by closing various tax loopholes and ending various credits, including the Earned Income Credit.

The new revenues will offset about $1.3 billion of the $1.6 billion business tax cut, said David Zin, an economist for the Senate Fiscal Agency.

But almost all revenues are going into the state’s General Fund rather than the School Aid Fund, which is losing more than $700 million a year from the business tax cut.

In short, while the General Fund gets new revenues to replace money lost from the tax cut, the School Aid Fund does not.

As a result, when adjusted for inflation, the School Aid Fund this school year will have its lowest revenues since Proposal A was enacted in 1994, according to the Senate Fiscal Agency.

Equated to 2010 dollars, the School Aid Fund had revenues of almost $12 billion in 1994. The fund’s revenues peaked at a just more than $14 billion in the late 1990s and are expected to hit bottom at slightly above $10 billion in 2011-12 in inflation-adjusted dollars, the Senate Fiscal Agency report said.

In actual dollars in 2010-11, the School Aid Fund had $11.2 billion; in 2011-12, that’s anticipated to drop to $10.7 billion. Without the tax change, the fund would have had estimated revenues of $11.4 billion, the report said.

“The projected 5% decrease in SAF revenue in FY 2011-12 almost exclusively reflects the tax reform legislation that repealed the (Michigan Business Tax) and its earmark of revenue to the SAF,” the Senate Fiscal Agency report said.

Rice, the KPS superintendent, said the decline in the School Aid Fund means school districts have seen their revenues eroded by about one-sixth since 2005, when taking inflation into account.

The $6,846 minimum per-pupil foundation allowance for this school year is $29 less than the $6,875 minimum in 2005-06. Had the 2005-06 amount kept pace with inflation, districts would be receiving close to $7,800 per student this year, 14 percent more than they are actually receiving.

“It’s not simply that the School Aid Fund is at its lowest level since Proposal A,” Rice said, “it’s also that $1 given to us today buys one-sixth less than it did five years ago.”

Bird, the Mattawan superintendent, said the Legislature could reduce that gap by diverting some of the new revenues to the School Aid Fund.

“Are Snyder and the Republican Party willing to face accountability?” Bird said of the decline in the School Aid Fund.

“Let’s say the tax cut works” in generating new jobs and more revenue for the state, Bird said. “When that new revenue comes in, will it go back to existing programs?”

Republican plans

Snyder told reporters in December that he did not anticipate his budget proposal for fiscal 2013 would include further cuts to K-12 education.

However, he said funding increases likely would be tied to initiatives to improve student achievement.

That budget plan is expected to be released several weeks after Snyder delivers his State of the State address on Jan. 18.

Adler said House Republicans are “cautiously optimistic” about K-12 funding “based on what we are hearing about funding levels, but the key will be turning around Michigan’s economy and hoping that the national and global economies don’t cause additional headaches.”

One bright note: According to analysts with the Senate Fiscal Agency, it appears the state has a $1.3 billion surplus from fiscal 2011 — of which $722 million is in the School Aid Fund.

Ari Adler

“As for the so-called surplus funds, Speaker Bolger would like to use that one-time money to assist with long-term costs, rather than using it to provide a one-time shot in the arm for schools that cannot be maintained,” Adler said.

Adler suggested that the money might be used to help pay down the unfunded liability in the Michigan Public School Employees Retirement System. That system is funded by contributions from current employees as well as districts; this year, the mandated contribution for districts is 24.46 percent of their payroll. For the average school district, that’s about 13 percent of their operating budget.

“Those retirement costs are eating us alive,” Goss, of the Vicksburg schools, said. “We pay a lot more for retirement than we do health insurance.”

Adler said that a “key reform” for the Michigan Public School Employees Retirement System would be adopting the same system used for state employees. Since 1997, all new state employees have had a 401K. Starting this year, state employees who want to maintain a pension must now contribute 4 percent of their salary toward it. If they don’t want to contribute toward their pensions, it will be moved over to a 401K and their retirement benefit will be based on that instead.

Adler also reiterated the stance made by Snyder that funding increases henceforth likely will be based on performance.

“A larger point in this whole discussion, though, needs to be a focus on results for students rather than rewards for school budgets,” Adler said. “Everyone is so focused on dollars and cents when they really ought to be focused on outcomes — are we educating our students so they are prepared to enter the work force with skills that employers need?

“Taxpayers are paying for these educations, so we have to ask if they are getting the best return on their investment. That’s why education reforms have been, and continue to be, necessary. If we had put more money toward schools this year without reforms, we’d be in a deeper hole than ever when we go to do the 2013 budget.”

He said that education funding “has been and will continue to be a priority for House Republicans,” saying that K-12 schools were cut less than any other area in 2011-12.

“But decisions we make must be about balancing the budget, facing reality and ensuring accountability to taxpayers,” Adler said. “People ... want results. That’s probably more true in education than in any other area of the budget.”